Stock A's Beta Is 1

question 80

Multiple Choice

Stock A's beta is 1.5 and Stock B's beta is 0.5.Which of the following statements must be true,assuming the CAPM is correct.

• A) Stock A would be a more desirable addition to a portfolio then Stock B.
• B) In equilibrium,the expected return on Stock B will be greater than that on Stock A.
• C) When held in isolation,Stock A has more risk than Stock B.
• D) Stock B would be a more desirable addition to a portfolio than A.
• E) In equilibrium,the expected return on Stock A will be greater than that on B.

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Annual Net Cash Inflow

The net amount of cash that flows into a company within a one-year period after all expenditures are subtracted.

Residual Value

The estimated amount for which an asset is expected to be sold at the end of its useful life, after deducting expected costs of disposal.

Useful Life

Useful life is the estimated period that an asset is expected to be usable for its intended purpose, influencing depreciation and amortization calculations.